Suze Orman Says To Have At Least 3 To 5 Years Of Cash Available When Retired: Here's Why

Retirement brings exciting possibilities but also requires careful financial planning to ensure long-term stability. In a recent Women & Money podcast episode, financial expert Suze Orman responded to a listener named Linda, who asked whether retirees should keep one year or five years' cash in an emergency fund. Orman's advice offered insights into navigating market fluctuations during retirement. 

Don't Miss:

• CD Popularity Soars: Over 50 Million Americans Embrace Safe Savings with 5–10% Annual Growth
• Can you guess how many retire with a $5,000,000 nest egg? The percentage may shock you.
• The number of ‘401(k)' Millionaires is up 43% from last year — Here are three ways to join the club.

According to Orman, most retirees depend on their retirement accounts, such as Roth or traditional IRAs, to fund their monthly living expenses. These accounts often hold investments in stocks, bonds or mutual funds. While these assets grow over time, their value fluctuates with the market. 

Orman says the problem arises when retirees need to withdraw money from their accounts during a market crash. Selling stocks or bonds during a market downturn can cut into retirement savings, potentially jeopardizing future financial security. 

To address this risk, Orman recommends that retirees keep a cash reserve with three to five years of living expenses. "If you really wanna be on the safe side, it's five years," she said. 

See Also: Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing — you can become an investor for $0.80 per share today.

This cash reserve acts as a safety net, allowing retirees to withdraw the funds they need rather than selling and withdrawing from their investment accounts during a market slump. 

Orman explains that keeping three to five years’ worth of expenses is important because that's how long it often takes the markets to recover from significant downturns. Having enough cash for that time minimizes the need to sell at a loss, ensuring retirees can leave their investments alone long enough to regain their value. 

It usually takes the markets longer to recover during a recession. According to Invesco, the average decline during the "more mild" recessions in the '80s and '90s was around 20% and the stock market recovered from these within one to two years. 

The more extreme recessions, like the 2008 financial crisis, extend that recovery time. 5 paisa, an online investing and trading platform, states it wasn't until 2013 that the market recovered to its precrisis levels. 

Trending: $100K Sitting In A CD Account, Should I Move Money Into The Stock Market?

If you're nearing retirement and don't yet have a sufficient cash reserve, Orman recommends creating one strategically. She says to evaluate your investments and consider selling stocks or assets that aren't performing well or that you don't believe will yield strong future returns. Another option she proposes is taking small amounts from well-performing investments to gradually build your reserve. 

For those needing access to their money immediately, Ameriprise Financial recommends keeping cash reserves in a high-yield savings or deposit account, cash management account or sweep account. Alternatively, if you can wait one to three months to access those cash reserves – for instance, if you have a couple months of cash to cover expenses in your checking account – they say to consider keeping the funds in money market funds or investment certificates. 

For retirees like Linda, maintaining three to five years of cash reserves is a proactive step toward financial security. This strategy protects against the unpredictability of market downturns and allows investments to recover without being prematurely liquidated.

Read Next:

• Many are using this retirement income calculator to check if they’re on pace — here’s a breakdown on how on what’s behind this formula.
• Studies show 50% of consumers think Financial Advisors cost much more than they do — to debunk this, this company provides matching for free and a complimentary first call with the matched advisor.